North Korea cancels deal with South on factory park

By IBT Staff Reporter On 05/15/09 AT 10:20 AM

SEOUL - North Korea said on Friday it was cancelling all wage, rent and tax agreements with South Korea at a joint factory park just north of their heavily armed border that has become a focus of friction between the rival states.

The notice on the North's KCNA news agency came just hours after the South said it was requesting rare talks with the North over the Kaesong Industrial Park, which is their last major economic tie and a source of currency for the cash-starved North.

We announce repeal of related regulations and contracts that were made in favor of South Korea, KCNA quoted a letter from the North's Kaesong management office sent to the South.

Destitute North Korea, stung by tightened trade sanctions in response to its defiant rocket launch in April and decision to back away from a nuclear disarmament-for-aid deal, has been looking to obtain more money from South Korean companies there.

North Korea will implement new regulations and South Korean companies and officials based in Kaesong must unconditionally accept what we notified them, and, if unwilling to implement them, can leave the complex, it said.

The two Koreas have been technically at war since their 1950-53 conflict ended in a truce, not a peace treaty.

They held their first economic talks in more than a year in April at Kaesong, where scores of South Korean firms use cheap North Korean labor and land to make goods such as shoes and watches at the complex just north of their border.

North Korea said it wanted to revise the terms of operation to increase the wages for its more than 30,000 workers at Kaesong, whose basic minimum monthly salary of $70 is paid to the North Korean state, and renegotiate land lease terms.

North Korea's already battered economy would likely take a further blow if it made good on a threat issued in recent weeks to conduct a fresh nuclear test. It was hit by U.N. sanctions after its first and only test in October 2006.

North Korea, angered by the decision of South Korean President Lee Myung-bak after he took office a year ago to cut a steady flow of aid to his impoverished neighbor, has disrupted work at the factory enclave to put pressure on Seoul to drop its hard line.

South Korea has called for the immediate release of one of its workers detained by the North at the park for about two months who is suspected of making derogatory comments about the country's communist system.

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